The futures markets are well in the green this morning ahead of the Federal Open Market Committee (FOMC) meeting this afternoon. The Fed will release its interest rate decision later today and traders think the lead bank will hold interest rates steady between 5.25% and 5.50%. Still, most traders will be looking to glean any information about future interest rate policy, including the possibility of a future rate hike at the November meeting. This will likely involve looking at the series of projected future interest rates, commonly known as “the dot plot”, which the Fed releases with the decision. Investors will also look to Federal Reserve Chairman Powell's press conference this afternoon. Given that inflationary pressures increased in August and fuel prices continue to be much higher than a year ago, we think most eyes will be on the outlook for future hikes. Overall, we think the release will cause stock-price volatility to pick up compared to the first half of the day.
The stock markets started weakly yesterday, following softer-than-expected housing starts, which showed that new home construction dropped 11.3% from July to an annualized rate of 1.283 million in August. This development suggests some weakness in residential and other construction activity, which is a key contributor to U.S. GDP. The indices fell in the early portion of the session before recovering a bit in the second half of the day. Overall, the S&P 500 fell 10 points (down 0.22%), the NASDAQ was off 32 points (down 0.23%), and the Dow Jones Industrial Average declined 107 points (down 0.31%). Market breadth was somewhat negative, as decliners outpaced advancers by a 1.4-to-1.0 ratio. Most of the 11 stock market sectors finished lower yesterday, with energy stocks among the worst performers. However, communications and healthcare equities finished slightly in the green.
In commodity news, oil prices fell yesterday as traders took profits after a vast run-up in recent weeks. The energy source had recently reached new highs for this year following supply cuts from Saudi Arabia and Russia. Meantime, U.S. Treasury bond yields were mixed yesterday as short-term yields rose and long-term ones fell. The yield curve remains sharply inverted, which may foretell a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, increased slightly but remained close to the year's lows, with traders not pricing in much future stock-price volatility.
Several economic reports will be released in the days ahead. These include the Philadelphia Fed manufacturing survey for September and U.S. leading economic indicators for August on Thursday. On Friday, the S&P flash Services PMI (purchasing manager’s index) for September will be released. Additionally, several regional Fed presidents will give remarks on the economy on Friday. Leading package transportation company FedEx (FDX) will release earnings after the bell today, and its outlook will give some insight into the state of the consumer. - John E. Seibert III
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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